Canada: OSFI Cracks Down On The Use Of The Words "Bank", "Banker" And "Banking"

On June 30, 2017, the Office of the Superintendent of Financial Institutions Canada (OSFI) issued an advisory (Advisory) regarding the Bank Act (Canada) restrictions on the use of the words "bank", "banker" and "banking" and equivalent words, as interpreted by OSFI. The Advisory signals, in particular, OSFI's increased attention to the use of these words — as well as similar words — by financial service providers that are not Schedule I or Schedule II banks. This development is also noteworthy for any entity that has one of these words in its name, or any person (entity or individual) who uses one of these words, in each case to describe a business, or a part of a business, in Canada. Where the restrictions apply, transition periods are provided to allow time for compliance.

USE OF BANK WORDS

The "bank words", use of which is restricted under the Bank Act, are "bank", "banker" and "banking", and include any of those words in any language and any word or words, in any language, that are equivalent to any of those words. In the Advisory, OSFI extends the term "bank words" to include "words – including words not found in dictionaries, and compound words and contractions containing parts – that resemble, in writing or phonetically, any of the words 'bank', 'banker' or 'banking'." OSFI provides as examples "banc", "mybank" and "bancorp". This interpretation, which captures similar words as well as equivalent words, goes beyond what the statute provides.

Section 983 of the Bank Act sets out two separate restrictions on the use of the bank words, both of which are subject to specific exemptions in the Bank Act and the regulations:

1. Name Restriction: This restriction prohibits every entity that is not a Schedule I or Schedule II bank from acquiring, adopting or retaining a name that includes any bank word to indicate or describe a business in Canada or any part of a business in Canada
2. Business Description Restriction: This restriction prohibits every person (including an individual or an entity other than a Schedule I or Schedule II bank), from using any bank word to indicate or describe a business in Canada or any part of a business in Canada.

In the Advisory, OSFI expresses the view that the bank words "indicate or describe" a person's business (or any part of its business) where the bank words are acquired, adopted or used in a name, or they are used in a manner, that could reasonably suggest to the public the nature of the person's business (or any part of its business). Several examples of prohibited trade names and phrases are set out in the Advisory. These examples include "Welcome to Canada's newest online bank", "Commercial Banking Centre", "Better Banking", "bank accounts/bank services", "for all your banking needs", and others. OSFI mentions that even listing the entity's name under the "banks" category in a Canadian directory would contravene these restrictions.

Further, OSFI confirms the position stated in Ruling 2004-08 to the effect that "business" means the carrying on of a serious occupation and, as a result, not-for-profit corporations may be subject to these restrictions.

Indirect use of the bank words is also restricted. OSFI notes that this occurs where a person causes another person to use the bank words to indicate or describe the business of the first person (or any part of its business). The Advisory does not consider other indirect circumstances, such as where a person, on its own initiative, uses the bank words to indicate or describe the business of another person that is not be entitled to use the bank words themselves. For example, payment methods specified by a payee might include "pay through your financial institution's online banking", as the Canada Revenue Agency does.

The Advisory does not consider the Bank Act prohibitions against:

• The use of a name that includes both the phrase "credit union" and the word "bank" or "federal"
• The use of a name that includes both the word "cooperative" and the word "bank" or "federal"
• The use of the name or identifying mark of a bank , foreign bank or bank holding company
• Making any statement that a business is connected, associated or affiliate with a bank or a foreign bank

EXCEPTIONS

Section 983 of the Bank Act includes a number of specific exceptions to the Name Restriction and the Business Description Restriction. In the Advisory, OSFI only focuses on the exception in subsection 983 (5.1), which permits the use of the bank words "in relation to a business that is not engaged in financial activities, unless the business is carried out by a prescribed entity." The Use of the Word "Bank" by Non-financial Businesses (Excluded Entities) Regulations specifically exclude from the exception an entity in which a Canadian bank has a substantial investment (where a different exception may be applicable) and provincially or federally regulated financial institutions that are not Schedule I or Schedule II banks, among others.

OSFI states in the Advisory that a non-bank person, if it is not one of the prescribed entities, may rely on this exception when its "use of the Bank Words is not in relation to any part of the person's financial activity business". OSFI provides a number of examples of permitted and prohibited uses of the bank words under this exception. For instance, an entity that is not a prescribed entity whose business is to purchase and sell real estate could use the trade name "Land Bank," but if it also provides financing to purchasers, it could not use that trade name. In this example, OSFI appears to prohibit any use by such a non-bank entity, even if the term "Land Bank" is used only for the non-financial activities. This does not reflect OSFI's statement quoted at the beginning of this paragraph, which would require that the use be tied to a financial activity business.

As another example, OSFI states that an entity that is not a prescribed entity whose business is to develop and make available software or apps that persons may use to carry out financial transactions could not adopt the trade name "Tech Bank". In providing this example, OSFI does not address the question of whether the software or app developer is engaged in financial activities (which is not defined in the Bank Act or the Advisory), but this is assumed from the conclusion. This is an issue that merits further consideration, along with the question of whether the bank words are being used to describe a business and financial activity of the developer or an activity of a customer or another third party. Although "Tech Bank" is an example of a phrase that could reasonably suggest that the nature of the user's business is financial activities, OSFI has not tied these two concepts together in the Advisory. What if the developer used the trade name "Banking Tech Solutions"? While such a trade name would be intended to indicate or describe a business, it does not reasonably suggest, on its own, that the developer is engaged in financial activities itself. Further, the developer may not, in fact, be engaged in financial activities, which may be undertaken by its financial institution partner or the customer's own financial institution. In our view, in such a case, the context in which the term is used would have to be considered.

There are numerous other exceptions, some of which require disclosures in accordance with the applicable Name Use Regulations.

IMPLEMENTATION DEADLINES

While the Advisory came into effect immediately upon publication, OSFI has delayed its implementation, expressly to give non-bank financial service providers and others that are subject to the restrictions the time to comply. OSFI has provided the staggered deadlines listed below for persons to eliminate any prohibited uses of the bank words from the following media:

While telephone scripts are not listed, prohibited uses of the bank words should also be eliminated there, likely by the 2017 deadline.

CONCLUSION

With OSFI signalling increased attention to this issue, persons using the bank words in their name or otherwise to indicate or describe their business in Canada (or any part of their business in Canada) should revisit this use. This should include a review of trade names, division or business unit names, job titles, client documents and other communications in any form, internal policies and procedures, advertising and signage in all media.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.